ECB to continue rate cuts, neutral rate expected in H1-25 – Rehn

Olli Rehn, Governor of the Bank of Finland, indicated that the European Central Bank (ECB) would continue its rate-cutting cycle, with the deposit rate potentially reaching the neutral level by the first half of 2025.

“The direction of rate changes is clear,” Rehn said during a conference in London on Tuesday.

“But the speed and scope of rate cuts will depend on our overall assessment at each meeting of three factors: the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.” he added.

Rehn noted that the neutral rate, which neither stimulates nor hinders economic growth, is estimated to be between 0.2 per cent and 0.8 per cent in real terms. Considering a 2 per cent inflation target, this would imply a deposit rate of between 2.2 per cent and 2.8 per cent.

The ECB has already implemented three rate cuts this year in response to declining inflation. Market expectations currently point to further rate reductions at upcoming meetings. However, Rehn said Bank of Finland would closely monitor economic indicators to determine the optimal pace and magnitude of future rate adjustments.

Attribution: Reuters